REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

FIRST DIVISION
MANILA
NORTH
CORPORATION,

TOLLWAYS

CTA AC NO. 82

Petitioner,
Members:
- versus ACOSTA, Chairperson
THE
MUNICIPALITY
OF
UY,and
GUIGUINTO,
BULACAN
AND
FASON-VICTORINO, JJ.
HON. LUALHATI NARCISO IN
HER CAPACITY AS MUNICIPAL
Promulgated:
TREASURER OF GUIGUINTO,
OEC 0 2012; 2 ;DO~- '"'
BULACAN,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - -

DECISION
Fa bon - Victorino, J. :

This appeal via a Petition for Review 1 seeks to reverse the

(1) Consolidated Decision 2 dated July 7, 2011, which denied
petitioner's Complaints for the cancellation of the local business
tax assessment and mayor's permit and other regulatory fees
assessment issued against it by the Municipality of Guiguinto,
Bulacan; and the (2) Order 3 dated October 6, 2011, which

effectively affirmed the assailed Decision by denying petitioner's /

1

Docket, pp. 5-29.

Docket, pp. 34-42.
Docket, pp. 44-45.

DECISION
CTA AC NO. 82
Page 2 of 35

Motion for Reconsideration, both rendered by Branch 84 of the

Regional Trial Court (RTC) of Malolos City, Bulacan in Civil Case
Nos.

75-M-2009

and

100-M-2009, entitled "Manila

North

Tal/ways Corporation vs. The Municipality of Guiguinto, et

a/.,

It was established that petitioner Manila North Tollways

Corporation is an organized and existing domestic corporation

with principal place of business at the North Luzon Expressway
(NLEX) Compound, Balintawak, Caloocan City.

Respondents, on the other hand, are the local government

unit (LGU) of the Municipality of Guiguinto, Bulacan, represented
by its Municipal Mayor or such other authorized persons in the
Office

of

the

Municipal

Mayor,

Guiguinto

Municipal

Hall,

Guiguinto, Bulacan; and the Municipal Treasurer of Guiguinto,

Lualhati Narciso, who is in charged with the implementation of
the Revenue Code of the Municipality of Guiguinto, Bulacan, as
well as the collection and assessment of business taxes, license
and permit fees within said municipality. 4

On

September

respondents
4

an

12,

2008,

petitioner

assessment for mayor's

Pars . 2, 3 and 4, Parties, Petition for Review, docket, p. 6 .

received

from

permit and

other

DECISION
CTA AC NO. 82
Page 3 of 35

regulatory fees for the years 2004 to 2008 in the total amount of
Php2,316,972.50, inclusive of surcharges and penalties. About a
month later or on October 14, 2008, petitioner received another
assessment, this time for local business tax (LBT) for the years
2005 to 2007 amounting to Php67,443,765.93, inclusive of
surcharges and penalties. 5

On

November

4,

2008 6

and

November

11,

2008 7 ,

petitioner filed separate protest letters with the Office of the

Municipal

Treasurer

of

Guiguinto,

assailing

the

two

(2)

assessments issued against it.

Respondent Municipal Treasurer denied both protests in a

letter dated January 9, 2009, received by petitioner on January
15, 2009. 8

This

prompted

petitioner

to

file

two

(2)

separate

complaints with the RTC of Malolos City, Bulacan, to wit: (1) Civil
Case No. 75-M-2009, on February 2, 2009 9 , to annul the LBT
assessment; and, (2) Civil Case No. 110-M-2009, on February 9,

5
6

8
9

Pars. 9 and 10, Statement of Facts and Antecedent Proceedings, Petition for Review,
docket, p. 7.
Annex " E", Petition for Review, docket, pp . 60 to 75 .
Annex " F", Petition for Review, docket, pp . 76 to 87 .
Annex " G", Petition for Review, docket, pp. 94 to 95.
Annex " H", Petition for Review docket, pp . 96 to 126.

DECISION
CTA AC NO. 82
Page 4 of 35

2009, 10 to annul the permit and regulatory fees assessment.

Civil Case No. 75-M-2009 was raffled to RTC Branch 84; while
Civil Case No. 110-M-2009 to RTC Branch 20.

At the parties'

instance, Civil Case No. 110-M-2009 was consolidated with Civil

Case No. 75-M-2009 and jointly heard by RTC Branch 84. 11

On March 24, 2009, respondents filed separate Answers

with Counter Claim for the two cases. 12

On November 12, 2009, the Republic of the Philippines,

through the Office of the Solicitor General, filed an Omnibus
Motion [(i) For Intervention; and, (ii) to Admit Hereto Attached
Manifestation and Motion in Intervention] 13 , which the RTC

granted. 14

In

its

Complaints,

petitioner

prayed

for

writ

of

preliminary injunction to restrain respondent from enforcing and

collecting the assessed LBT, as well as assessed mayor's permit
and regulatory fees and from further assessing, imposing, or
collecting any local business taxes, permits, or regulatory fees

10

Annex "I", Petition for Review, docket, pp. 133 to 156.

Order dated February 18, 2009, Volume II, RTC Records, pp. 64 to 65.
12
Volume I, RTC Records, pp. 146 to 152 and Volume II, RTC Records, pp. 145 to
151.
13
Volume I RTC Records, pp. 417 to 438.
14
Volume I, RTC Records, p. 539.
11

DECISION
CTA AC NO. 82
Page 5 of 35

from petitioner during the pendency of the civil cases. 15 In the

Order dated February 17, 2010, 16 the RTC denied the relief
prayed for.

Petitioner's Motion for Reconsideration was also

denied in the Order dated March 12, 2010. 17

This led petitioner to file a Petition for Certiorari with the

Court of Appeals primarily assailing the denial of its application
for a writ of preliminary injunction. The Court of Appeals, in its
Decision dated July 23, 2010, denied the petition for lack of
jurisdiction as well as petitioner's Motion for Reconsideration in
the Resolution of December 3, 2012. 18

In the Order dated August 31, 2010, the RTC, citing the
Court of Appeals' Decision of July 23, 2010, denied the Motion
for Reconsideration of the Order dated February 17, 2010, earlier
filed by Intervenor Republic of the Philippines.

19

On June 25, 2010, to allegedly avoid further inconvenience

and possible disruption of petitioner's operations but without

15

Pars. 14 and 15 , Statement of Facts and Antecedent Proceedings, Petition for

Review, docket, pp . 8 to 9; Complaint docketed as Civil Case No . 75-M-2009,
Volume I, RTC Records, p. 29; Complaint docketed as Civil Case No. 110-M-2009,
Volume II, RTC Records, p. 24.
16
Par. 15, Statement of Facts and Antecedent Proceedings, Petition for Review,
docket, p. 9; Volume I, RTC Records, pp . 493 to 495.
17
Volume I, RTC Records, p. 532.
18
Par. 16, Statement of Facts and Antecedent Proceedings, Petition for Review,
docket, p. 9 .
19
Volume I , RTC Records, p. 579 .

DECISION
CTA AC NO. 82
Page 6 of 35

admitting its liability for any past, current or future LBT and
mayor's permit and regulatory fees, petitioner executed with
respondent a Memorandum of Agreement whereby it agreed to
remit the amount of PhpS,OOO,OOO.OO to respondents subject to
the condition that in the event that a final, unappealable, and
executory judgment by a court of competent jurisdiction be
rendered

fully

or partially

exempting

petitioner from

local

business tax and permits and regulatory fees, the full amount
paid shall be refunded to petitioner or credited or set-off against
any taxes, fees charges, or other liabilities that are legally and
irrefutably owing to the Municipality of Guiguinto, Bulacan. 20

During trial before the RTC, only petitioner presented

evidence. 21

Respondents did not, 22 but formally offered the

exhibits they presented during the hearings on the application for

a writ of preliminary injunction, 23 which the RTC admitted in its
Order dated April 18, 2011. 24

After the parties filed their respective memoranda 25 on May

31, 2011, the consolidated cases were submitted for decision.

20

Volume I, RTC Records, pp. 687 to 700 .

Par. 17, Statement of Facts and Antecedent Proceedings, Petition for Review,
docket, pp. 9 to 11; Volume I, RTC Records, p. 648 .
22
Minutes of the January 17, 2011 Hearing, Volume I , RTC Records, p. 647.
23
Respondents ' Formal Offer of Evidence, Volume I, RTC Records, pp . 677 to 679 .
24
Volume I, RTC Records, p. 714.
25
Volume I, RTC Records, p. 741.
21

DECISION
CTA AC NO. 82
Page 7 of 35

On

July

7,

2011,

the

RTC

rendered

the

assailed

Consolidated Decision in favor of respondents, in this wise: 26

WHEREFORE, for lack of merit, both

complaints
are
hereby
DISMISSED.
Accordingly, the imposition of the subject
taxes by the defendants is upheld and
plaintiff is hereby ordered to settle the same
upon finality of this decision.
SO ORDERED .

On

August

9,

2011,

petitioner

filed

Motion

for

Reconsideration alleging, among others, that the RTC failed to

consider that the assessments issued by respondents have
absolutely no factual and legal bases.

Allegedly, the basis of

computation of petitioner's alleged LBT liability is neither in the

Local Government Code (LGC) nor in the Revenue Code of
Guiguinto, Bulacan (Guiguinto Revenue Code), much more in
settled jurisprudence. 27

In their Comment and/or Opposition filed on September 1,

2011, respondents argued that the LBT assessment was based
on both Section 143(h) of the LGC which states that the rate of
tax shall not exceed two percent (2/o) of gross sales or receipts
of the preceding calendar year, and Section 2A-02(j) of the
26
27

Volume I, RTC Records, pp. 789 to 797.

Par. 21 , Statement of Facts and Antecedent Proceedings, Petition for Review,
docket, p. 12; Volume I, RTC Records , pp. 798 to 8 16.

DECISION
CTA AC NO . 82
Page 8 of 35

Guiguinto Revenue Code, which imposes LBT of 2/o of gross

receipts. 28

Not convinced, the RTC denied petitioner's Motion for

Reconsideration in its Order dated October 6, 2011, ruling that
petitioner did not raise as an issue the correctness of the
computation of the LBT assessment. 29

On October 28, 2011, petitioner filed with the RTC a

Manifestation and Tender of Excluded Evidence in connection
with the ruling that it did put in issue the correctness of the
disputed LBT assessment. 30

On November 9, 2011, petitioner sought this Court's

intervention via the instant Petition for Review, imploring the
Court to:
(a)

reverse the Consolidated Decision dated

July 7, 2011 and the Order dated October 6, 2011 of

the RTC;
(b)

issue a decision annulling and setting

aside the LBT assessment and mayor's permit and

regulatory fees assessment issued against it, and,
28

29
30

Volume I, RTC Records, pp. 824 to 832.

Volume I, RTC Records , pp. 851 to 852 .
Volume I , RTC Records , pp. 860 to 864.

DECISION
CTA AC NO. 82
Page 9 of 35

(c)

direct

respondents,

their

agents,

substitutes, representatives, and all persons acting

under their direction or authority to permanently
desist

from

levying,

imposing,

assessing,

or

collecting LBT, mayor's permit, and regulatory fees

against it. 3 1

On November 18, 2011, the Court allowed the parties to

trade pleadings while the Branch Clerk of Court of RTC Branch 84
was directed to elevate to the Court the entire original records of
Civil Case Nos. 75-M-2009 and 110-M-2009.

Upon compliance with the foregoing directive by the parties

on December 12, 2011 32 and by the Branch Clerk of Court on
December

16,

2011 33 ,

the

instant

petition

was

deemed

submitted for decision on January 4, 2012. 34

THE ISSUE

The sole issue submitted for the determination of the Court

is whether or not petitioner is liable to pay respondents LBT and

31

Docket, pp. 5 to 29.

Docket, pp . 359 to 369 .
33
Docket, pp. 371 to 383.
34
Docket, p. 386.
32

DECISION
CTA AC NO. 82
Page 10 of 35

mayor's permit and regulatory fees for the years 2005 to 2007
and onwards.

35

THE COURT'S RULING

Situs of petitioner's LBT

pursuant to Section 150 of
the LGC

Petitioner postulates that its two (2) toll plazas, namely,

the Tabang Toll Plaza and Sta. Rita Toll Plaza, their customer
service centers, and its district office in Sta. Rita, all situated
within

the

Municipality

of

Guiguinto,

Bulacan,

cannot

be

considered as branches or sales offices as defined under Section

243(a)(2) of the Implementing Rules and Regulations (IRR) 36 of
the

LGC.

The toll

booths

in

said

toll

plazas

are

mere

infrastructures where tolls are paid for the privilege to use the
NLEX and as such, they should not be considered as extensions
of the principal office which conducts the operations of the
business.

Further, its district office in Sta.

Rita should not be

considered as a branch or sales office under Article 243(a)(2) o f /

35
36

Issue, Petition for Review, docket, p . 12.

Administrative Code No. 270.

DECISION
CTA AC NO. 82
Page 11 of 35

the IRR of the LGC.

To be such, the business of the principal

office is conducted by extension in such branch or sales office.

To be considered a branch or sales office, it must be able to
perform all the principal activities performed by its principal
office.

Since the Sta. Rita district office does not perform all the

activities performed by the principal office, it should not be

considered as a branch.

Thus, the only situs of petitioner's LBT

is the LGU where its principal office is located pursuant to

Section 150 of the LGC. 37

In their Comment, respondents stress that the toll plazas

and customer service centers situated within Guiguinto, Bulacan
are actually performing the functions of a branch or sales outlet
as indicated in the testimonies of petitioner's witnesses, Atty.
Romulo S. Quimbo and Atty. Cynthia Maria G. Casino.

Based on

Atty. Quimbo's testimony: (1) there are customer service centers

at petitioner's Tabang and Sta. Rita toll plazas; (2) the Sta. Rita
customer service has a motor pool, toll collection department,
traffic safety and control division; (3) the Tabang and Sta. Rita
toll plazas are also utilized for the payment of toll fees and that
they issue receipts for such payments; and ( 4) easy tags could
likewise be loaded on these toll plazas.

37

Pars. 31 to 40, Discussion, Petition for Review , docket, pp. 14 to 16 .

DECISION
CTA AC NO. 82
Page 12 of 35

On the other hand, Atty. Casino dwelt on the factual basis

of the imposition, assessment and collection of LBT as well as
mayor's permit and regulatory fees by confirming that petitioner
has two (2) sales offices within the Municipality of Guiguinto,
Bulacan where easy tags and loads are sold and that such sales
of easy tags and loads are sales or transactions of petitioner. 38

In the assailed Consolidated Decision, the RTC expressed

its justification for ruling that petitioner maintains branch or
sales office within the Municipality of Guiguinto, Bulacan, in this
wise:
Quimbo likewise admitted that there
are customer service centers at its Tabang
and Sta. Rita gates but the personnel there
are employees of Tollways Management
Corporation (TMC) and not of the plaintiff.
Quimbo also clarified that TMC is a
management company engaged by the
plaintiff to conduct the day to day business
operations,
toll
collections,
security,
patrolling, assistance to motorists along the
system. Quimbo further explained that
plaintiff pays for the services rendered by
TMC. Quimbo admitted further that the Sta.
Rita customer service center has a motor
pool, toll collection department, traffic safety
and control division, customer service and
emergency clinic.
Quimbo also admitted that plaintiff
sells transponders and magnetic cards at its
Tabang and Sta. Rita customer service
centers. Quimbo likewise acknowledged that
the said transponders or easy tags may be
reloaded at the Tabang and Sta. Rita toll /
gates. Similarly, Quimbo admitted that the
38

Pars. 5 to 7, Discussion, Comment, docket, pp. 362 to 363.

DECISION
CTA AC NO . 82
Page 13 of 35

north-bound vehicles exiting through Tabang

and Sta. Rita toll gates are required to pay
toll fees and are issued receipts for such
payments.
Quimbo
admitted
further
that
motorists traveling from Balintawak to
Bocaue are charged a fixed or flat fee, while
those traveling from Bocaue and exiting to
either Tabang or Sta. Rita gates are charged
fees based on the kilometers they traveled.
XXX

XXX

XXX

When cross-examined, Casino alleged

that TMC became a sub-contractor of the
plaintiff based on an Operation
and
Management Agreement (OMA) which was
allowed by the STOA. Casino also confirmed
that the scope of the operation of TMC under
the OMA is one ( 1) district from Balintawak
to Sta. Ines, Pampanga, and the building
housing such district is located in Sta. Rita,
Guiguinto,
Bulacan.
Casino
likewise
acknowledged that the Sta. Rita District
Office is in charged (sic) of deploying
resources and personnel to perform certain
functions under the OMA. Casino also
admitted that the Sta. Rita District Office has
around 150 to 180 personnel.
Casino acknowledged further that the
Sta. Rita office has a motor pool and a clinic.
Casino likewise admitted that TMC has two
sales offices, one located in Sta. Rita and the
other in Tabang both within the Municipality
of Guiguinto, where easy tags and its loads
of the plaintiff are sold. In view thereof,
Casino confirmed that the sale of such easy
tags and its loads are sales transactions .
XXX

XXX

XXX

Casino likewise admitted that TMC

conducts sales transactions in the Sta. Rita
and Tabang toll gates of the plaintiff and the
income collected thereat are considered
earnings of the latter. Casino also clarified /
that TMC is paid a fix fee by the plaintiff and

DECISION
CTA AC NO. 82
Page 14 of 35

has no comm1ss1on on its collections from

the operation and maintenance of NLEX.
Casino explained further that the Sta.
Rita building is owned by the plaintiff and
TMC holds office therein for free since it is
the one performing the responsibility of the
former
(plaintiff)
in
operating
and
maintaining NLEX as a contractor.
XXX

XXX

XXX

While the overwhelming proofs, even

coming from the admissions of plaintiff's own
witnesses that massive sales transactions
occur and are consummated in its Sta. Rita
and Tabang service centers and toll plazas,
show that such
service
centers
are
performing the functions of branches or sales
outlets, the plaintiff has only offered its
opinion to prove that the said service centers
are not branches or sales outlets but mere
support facility. Plaintiff's only evidence to
support such opinion is its claim that all its
sales are recorded in its principal office in
Caloocan City where it pays its local taxes. 39

Taking

all the foregoing

circumstances together, duly

established during the trial before the court a quo, the Court
finds

the

petition

wanting

in

material

and

compelling

or

persuasive reason enough to grant the relief prayed for by

petitioner.

The evidence overwhelmingly show that business

operations of petitioner are also conducted through its Tabang

and Sta. Rita toll plazas and customer service centers and

through its Sta. Rita district office, all of which are within t h e /
Municipality of Guiguinto, Bulacan.
39

Volume I, RTC Records, pp. 789 to 797

DECISION
CTA AC NO . 82
Page 15 of 35

The

business

activities

and

operations

conducted

by

petitioner in its Tabang and Sta. Rita toll plazas and customer
service centers and Sta. Rita district partake the nature of
branches as defined under Article 243(a)(2) of the IRR of the
LGC, to wit:

Article 243. Situs of the Tax . (a)

Definition of Terms XXX

XXX

XXX

(2) Branch or Sales Office - a fixed

place in a locality which conducts
operations of the business as an
extension of the principal office . Offices
used only as display areas of the products
where no stocks or items are stored for sale,
although orders for the products may be
received thereat, are not branch or sales
offices as herein contemplated. A warehouse
which accepts orders and/or issues sales
invoices independent of a branch with sales
office shall be considered as a sales office.
(Emphasis supplied)

In view of the foregoing provision, petitioner's Tabang and

Sta. Rita toll plazas and customer service centers and Sta. Rita
district office are deemed branches which petitioner maintains for
the conduct of its business, all of which are located in the
Municipality of Guiguinto, Bulacan.

Thus, any sales of said

branches or outlet shall be subject to LBT which shall accrue

solely to the Municipality of Guiguinto, Bulacan in accordance/

DECISION
CTA AC NO. 82
Page 16 of 35

with Section 150(a) of the LGC as implemented by Article

243(b)(l) of its IRR. The provision reads as follows:

SEC. 150. Situs of the Tax. - (a) For

purposes of collection of the taxes under
Section 143 of this Code, manufacturers,
assemblers, repackers, brewers, distillers,
rectifiers, and compounders of liquor,
distilled spirits and wines, millers, producers,
exporters, wholesalers, distributors, dealers,
contractors, banks and other financial
institutions,
and
other
businesses,
maintaining or operating branch or
sales outlet elsewhere shall record the
sale in the branch or sales outlet
making the sale or transaction , and the
tax thereon shall accrue and shall be
paid to the municipality where such
branch or sales outlet is located . In cases
where there is no such branch or sales outlet
in the city or municipality where the sale or
transaction is made, the sale shall be duly
recorded in the principal office and the taxes
due shall accrue and shall be paid to such
city or municipality. (Emphasis supplied)

Article 243. Situs of the Tax. XXX

XXX

XXX

(b) Sales Allocation - (1) All sales

made in a locality where there is a
branch or sales office or warehouse
shall be recorded in said branch or sales
office or warehouse and the tax shall be
payable to the city or municipality
where the same is located . (Emphasis
supplied)

Section 150(a) of the LGC as implemented by Section

243(b)(l) of its IRR is clear.

The LBT due on the sales or /

DECISION
CTA AC NO. 82
Page 17 of 35

transactions of a branch or sales outlet shall be paid to the

municipality where such branch or sales outlet is located.
its terms are clear, there is no room for interpretation.

Since

Basic is

the rule of statutory construction that when the law is clear and
unambiguous, the court is left with no alternative but to apply
the same according to its clear language. 40

Applying Section 150(a) of the LGC as implemented by

Section 243(b)(l) of its IRR to the instant case, since petitioner
maintains branches within the Municipality of Guiguinto, Bulacan
from which it derives gross receipts by selling and loading
transponders/easy tags and accepting toll fees from motorists,
petitioner is obliged to record such sales or transactions in the
branches which make the sales, and pay the corresponding LBT
to the Municipality of Guiguinto on the basis of the actual gross
receipts derived by the said branches.

40

Tawang Multi-Purpose Cooperative vs . La Trinidad Water District, G. R. No. 166471,

March 22, 2011, citing Security Bank and Trust Compan y vs. Regional Trial Court of
Makati, Branch 61, G.R. No . 113926, October 23 , 1996.

DECISION
CTA AC NO. 82
Page 18 of 35

Basis of Computation of
LBT Liability

With these finding, the Court needs to determine whether

the basis of respondents in computing the LBT liability of
petitioner for the years 2005 to 2007 is not flawed.

Respondents computed petitioner's LBT liability by init ially

dividing petitioner's "Total Revenues" by the "Total Length of Toll
Road" to arrive at petitioner's "Average Income per Km/year".
Thereafter, respondents multiplied the "Average Income per
Km/year" and the "Total Road Length Guiguinto Area-kms" to
arrive at the "Toll Fees Realized From & To the two (2) toll gates
and vice versa", which was the tax base used in computing
petitioner's LBT liability pursuant to Section 2A.02(j) of the
Guiguinto Revenue Code. 41

Petitioner asserts that the respondents' computation of

alleged LBT liability has no basis in the LGC, Guiguinto Revenue
Code and jurisprudence. The LBT assessment made no reference
to the gross receipts from the toll transactions in the alleged
branches located at the Municipality of Guiguinto, Bulacan.
Therefore, for lack of legal and factual basis to assess, impose,

41

Defendants (respondents herein) Exhibit "5 -A", Volume I, RTC Records, p. 95 .

DECISION
CTA AC NO. 82
Page 19 of 35

and compute, petitioner is not liable for LBT assessments issued

against it by respondents. 42

The computation of petitioner's LBT liability for the years

2005 to 2007 by respondents is erroneous .

It must be stressed that petitioner was granted by the

government the concession to finance,

expand, operate, and maintain the NLEX. 43

design,

rehabilitate,

For maintaining and

operating the NLEX, petitioner charges toll fees on its users. 44

And as a tollway operator rendering service for a fee, petitioner
is deemed as a service provider. This much is clarified by no less
than the Supreme Court in the case of Renata V. Diaz and Aurora
Ma.

F.

Timbo/

vs.

The

Secretary

of

Finance

and

The

Commissioner of Internal Revenue, 45 thus:

Now, do tollway operators render

services for a fee? Presidential Decree (P.D.)
1112
or the
Toll
Operation
Decree
establishes the legal basis for the services
that tollway operators render. Essentially,
tollway operators construct, maintain, and
operate expressways, also called tollways, at
the operators' expense. Tollways serve as
alternatives to regular public highways that
meander through populated areas and
42

Pars . 46 to 57, Discussion, Petition for Rev iew, docket, pp . 18 to 25 .

Par. 8, Statement of Facts and Antecedent Proceedings, Petition for Review, docket ,
p. 7.
44
Defendants ' (respondents herein) Ex hibit " 11 -H", Volume I, RTC Records, p. 2 14 . ~
45
G.R. No. 193007, July 19, 2011.
43

DECISION
CTA AC NO. 82
Page 20 of 35

branch out to local roads. Traffic in the

regular public highways is for this reason
slow-moving.
In
consideration
for
constructing tollways at their expense, the
operators are allowed to collect governmentapproved fees from motorists using the
tollways until such operators could fully
recover their expenses and earn reasonable
returns from their investments.
When a tollway operator takes a toll
fee from a motorist, the fee is in effect for
the latter's use of the tollway facilities over
which
the
operator
enjoys
private
proprietary rights that its contract and the
law recognize. xxx

Undeniably, petitioner is engaged in the sale of services for

a fee.

And since its business primarily to maintain and operate

NLEX for a fee, petitioner falls within the classification of a

"contractor" defined under Section

131(h) of the LGC and

Section 2A.Ol(h) of the Guiguinto Revenue Code, which reads as

follows:

SECTION 131. Definition of Terms. When used in this Title, the term:
XXX

XXX

XXX

(h) 'Contractor' includes persons,

natural
or juridical,
not
subject
to
professional tax under Section 139 of this
Code, whose activity consists essentially
of the sale of all kinds of services for a
fee , regardless of whether or not the
performance of the service calls for the
exercise or use of the physical or mental
faculties of such contractor or his employees.
(Emphasis supplied)

DECISION
CTA AC NO. 82
Page 21 of 35

SEC. 2A.Ol. Definitions . When used

in this article:
XXX

XXX

XXX

(k) 'Contractor' includes persons

natural
or juridical,
not
subject
to
professional tax imposed by the province,
whose activity consists essentially of
the sale of all kinds of services for a fee
regardless
of
whether
or
not
the
performance of the service calls for the
exercise or use of the physical or mental
faculties of such contractor or his employees.
(Emphasis supplied)

A fortiori, petitioner's LBT liability as a contractor should be

computed on the basis of Section 143( e) of the LGC and Section

2A.02(e) of the Guiguinto Revenue Code, which state:

SEC. 143. Tax on Business. The municipality may

impose taxes on the following businesses:
XXX

XXX

XXX

(e) On contractors and other independent

contractors in accordance with the following schedule:
With gross receipts for the
preceding calendar year in the
amount of
XXX

XXX

P2,000,000.00 or more

Amount of Tax
Per Annum
XXX

at a rate not
exceeding fifty
percent (50%) of one
( 1%) percent

SEC. 2A.02. Imposition of Tax. There is hereby

levied an annual tax on the following business at rates
prescribed thereof:
XXX

XXX

XXX

./

DECISION
CTA AC NO. 82
Page 22 of 35

(e) On contractors and other independent

contractors in accordance with the following schedule
(includes all services, manpower, funeral parlor):
Amount of Tax
Per Annum

With gross receipts for the

preceding calendar year in
the amount of
XXX

XXX

XXX

At the rate of 50% of

one ( 1%) percent

P2,000,000.00 or more

In the instant case, however, respondents classified the

petitioner's business as one falling under Section 2A.02(j) of the
Guiguinto Revenue Code 46 in relation to Section 143(h) of the
LGC 47 .

In their Comment to the instant Petition for Review,

respondents recognized that Section 2A.02(j) of the Guiguinto

Revenue Code and Section 143(h) of the LGC provide that the
rate of LBT should not exceed two percent (2/o) of the gross
sales or receipts of the preceding calendar year. 48
Notice of Assessment dated October 7,
petitioner

on

October

14,

2008,

But in its

2008, received

respondents

by

computed

petitioner's liability based on the latter's gross revenue and not

its gross receipts.

46

Section 2A.02(j) of Guiguinto Revenue Code refers to other businesses not

specifically enumerated under Section 2(A) .02 (a) to (i).
47
Section 143(h) of the LGC refers to any business not otherwise specified in Section
143(a) to (g).
48
Par. 12, Discussion, Comment, docket, p. 365

/
~

DECISION
CTA AC NO. 82
Page 23 of 35

In the case of Ericsson Telecommunications, Inc. vs. City of

Pasig, eta!. 49 , the Highest Tribunal cancelled the LBT assessment
against Ericsson Telecommunications, Inc. which was based on
gross revenue and not on gross receipts. The following portions
of the decision are instructive:

Respondent is authorized to levy business taxes

under Section 143 in relation to Section 151 of the Local
Government Code.
Insofar as petitioner is concerned, the applicable
provision is subsection (e), Section 143 of the same Code
covering contractors and other independent contractors,
to wit:
SEC.
143. Tax on Business.
The
municipality may impose taxes on the following
businesses:
XXX

XXX

XXX

(e) On contractors and other independent

contractors, in accordance with the following
schedule:
With gross receipts for
the preceding calendar year
in the amount of

Amount of Tax
Per Annum

xxxx
(Emphasis supplied)
The above provision specifically refers to gross
receipts which is defined under Section 131 of the Local
Government Code, as follows:
XXX

XXX

XXX

(n) 'Gross Sales or Receipts' include the total

amount of money or its equivalent representing the
49

G.R. No. 176667, November 22, 2007

DECISION
CTA AC NO. 82
Page 24 of 35

contract price, compensation or service fee,

including the amount charged or materials supplied
with the services and the deposits or advance
payments actually or constructively received during
the taxable quarter for the services performed or to
be performed for another person excluding discounts
if determinable at the time of sales, sales return,
excise tax, and value-added tax (VAT);
XXX

XXX

XXX

The law is clear. Gross receipts include money or

its equivalent actually or constructively received in
consideration of services rendered or articles sold,
exchanged or leased, whether actual or constructive.

In Commissioner of Internal Revenue v. Bank of

Commerce, the Court interpreted gross receipts as
including those which were actually or constructively
received, viz.:
Actual receipt of interest income is not
limited to physical receipt. Actual receipt may
either be physical receipt or constructive
receipt . When the depository bank withholds the
final tax to pay the tax liability of the lending bank,
there is prior to the withholding a constructive
receipt by the lending bank of the amount withheld.
From the amount constructively received by the
lending bank, the depository bank deducts the final
withholding tax and remits it to the government for
the account of the lending bank. Thus, the interest
income actually received by the lending bank, both
physically and constructively, is the net interest plus
the amount withheld as final tax.
The concept of a withholding tax on income
obviously and necessarily implies that the amount of
the tax withheld comes from the income earned by
the taxpayer. Since the amount of the tax withheld
constitutes income earned by the taxpayer, then
that amount manifestly forms part of the taxpayer's
gross receipts. Because the amount withheld
belongs to the taxpayer, he can transfer its
ownership to the government in payment of his tax
liability. The amount withheld indubitably comes
from income of the taxpayer, and thus forms part of
his gross receipts. (Emphasis supplied)

DECISION
CTA AC NO. 82
Page 25 of 35

Further elaboration was made by the Court in

Commissioner of Internal Revenue v. Bank of the
Philippine Islands, in this wise:
Receipt of income may be actual or
constructive. We have held that the withholding
process results in the taxpayer's constructive receipt
of the income withheld, to wit:
By analogy, we apply to the receipt of income
the rules on actual and constructive possession
provided in Articles 531 and 532 of our Civil Code.
Under Article 531:
' Possession is acquired by the material
occupation of a thing or the exercise of a right, or
by the fact that it is subject to the action of our
will, or by the proper acts and legal formalities
established for acquiring such right. '
Article 532 states :
'Possession may be acqu ired by the same
person who is to enjoy it, by his legal
representative, by his agent, or by any person
without any power whatever; but in the last case,
the possession shall not be considered as acquired
until the person in whose name the act of
possession was executed has ratified the same,
without prejudice to the juridical consequences of
negotiorum gestio in a proper case. '
The last means of acquiring possession
under Article 531 refers to juridical acts-the
acquisition of possession by sufficient title-to
which the law gives the force of acts of
possession. Respondent argues that only items of
income actually received should be included in its
gross receipts. It claims that since the amount had
already been withheld at source, it did not have
actual receipt thereof.
We clarify. Article 531 of the Civil Code
clearly provides that the acquisition of the right of
possession is through the proper acts and legal
formalities established therefor. The withholding
process is one such act. There may not be actual
receipt of the income withheld; however, as
provided for in Article 532, possession by any

DECISION
CTA AC NO. 82
Page 26 of 35

person without any power whatsoever shall be

considered as acquired when ratified by the person
in whose name the act of possession is executed.
In our withholding tax system, possession is
acquired by the payor as the withholding agent of
the government, because the taxpayer ratifies the
very act of possession for the government. There
is thus constructive receipt. The processes of
bookkeeping and accounting for interest on
deposits and yield on deposit substitutes that are
subjected to FWT are indeed-for legal purposestantamount to delivery, receipt or remittance.
Revenue
Regulations
No.
16-2005
dated
September 1, 2005 defined and gave examples of
'constructive receipt', to wit:
SEC. 4.108-4. Definition of Gross Receipts. -- xxx
' Constructive receipt' occurs when the money
consideration or its equivalent is placed at the control of
the person who rendered the service without
restrictions by the payor. The following are examples of
constructive receipts:

(1) deposit in banks which are made available to

the seller of services without restrictions;
(2) issuance by the debtor of a notice to offset
any debt or obligation and acceptance thereof by the
seller as payment for services rendered; and
(3) transfer of the amounts retained by the payor
to the account of the contractor.
There is, therefore, constructive receipt, when
the consideration for the articles sold, exchanged or
leased, or the services rendered has already been
placed under the control of the person who sold the
goods or rendered the services without any restriction
by the payor.
In contrast, gross revenue covers money or its
equivalent
actually
or
constructively
received,
including the value of services rendered or
articles sold, exchanged or leased, the payment of
which is yet to be received . This is in consonance
with the International Financial Reporting Standards,
which defines revenue as the gross inflow of economic

DECISION
CTA AC NO. 82
Page 27 of 35

benefits (cash, receivables , and other assets) ansmg

from the ordinary operating activities of an enterprise
(such as sales of goods, sales of services, interest,
royalties, and dividends), which is measured at the fair
value of the consideration received or receivable .
As aptly stated by the RTC:

' [R]evenue from

services rendered
is
recognized when services have been performed and
are billable.' It is 'recorded at the amount received
or expected to be received .' (Section E [17] of the
Statements of Financial Accounting Standards No.
1).
In
petitioner's
case,
its
audited
financial
statements reflect income or revenue which accrued to it
during the taxable period although not yet actually or
constructively received or paid. This is because petitioner
uses the accrual method of accounting, where income is
reportable when all the events have occurred that fix the
taxpayer's right to receive the income, and the amount
can be determined with reasonable accuracy; the right to
receive income, and not the actual receipt, determines
when to include the amount in gross income.
The imposition of local business tax based on
petitioner's gross revenue will inevitably result in the
constitutionally proscribed double taxation - taxing of
the same person twice by the same jurisdiction for the
same thing - inasmuch as petitioner's revenue or income
for a taxable year will definitely include its gross receipts
already reported during the previous year and for which
local business tax has already been paid.
Thus, respondent committed a palpable error
when it assessed petitioner's local business tax based on
its gross revenue as reported in its audited financial
statements, as Section 143 of the Local Government
Code and Section 22( e) of the Pasig Revenue Code
clearly provide that the tax should be computed based
on gross receipts. (Emphasis supplied)

This Court relied on the foregoing ruling in resolving the

case of Synovate Inc. (formerly PMI Asia, Inc.) vs. Pasig City,
Han. Roberto C. Eusebio in his capacity as Mayor of Pasig City, e t J

DECISION
CTA AC NO. 82
Page 28 of 35

a!. 50

The Court cancelled the LBT assessment issued against

Synovate Inc. for taxable years 2004 and 2005, for lack of basis
since the LBT assessment was based on Synovate Inc.'s gross
revenue as appearing in its audited financial statements rather
than on its gross receipts.

Under the principle of judicial hierarchy, this Court is

obliged to apply the ruling of the Supreme Court in resolving the
instant Petition for Review.

This is in consonance with the

deeply-engrained doctrine that the Supreme Court, by tradition

and in our system of judicial administration, has the last word on
what the law is.

It is the final arbiter of any justiciable

controversy. There is only one Supreme Court from whose

decisions all other courts should take their bearings. 51

Thus, while the Court agrees with the court a quo that
petitioner is liable for LBT with the Municipality of Guiguinto,
Bulacan based on the factual circumstances established during
trial, the Court has to cancel the LBT assessment issued by
respondents against petitioner for calendar years 2005 to 2007

CTA AC NO . 53, January 8, 2010 .

51

Church Assistance Program, Inc. vs. Hon . Vicente P. Sibulo, et at., G.R. No. 76552,
March 21, 1989.

W\/"

DECISION
CTA AC NO. 82
Page 29 of 35

for lack of legal mooring based on the doctrine laid down in

Ericsson Telecommunications, Inc. vs. City of Pasig, eta/. 52

Liability
for
Mayor's
Permit and Regulatory
Fees

Petitioner claims that respondents lack legal or factual

basis to assess mayor's permit and other regulatory fees against
it.

Allegedly, the mere presence of its toll plazas within the

territorial jurisdiction of the Municipality of Guiguinto, Bulacan is

not tantamount to conducting business therein.

Even assuming

that it conducts business therein, its business does not fall under
any of the businesses, trades, or activities enumerated under the
Guiguinto Revenue Code required to pay the mayor's permit and
other regulatory fees.

Further, mayor's permit and regulatory fees are collected

in the exercise of the LGU's police power and imposed in
exchange for the "protection" it furnishes the business that thrive
within it.

In the instant case however, petitioner receives no

benefit from respondents to entitle them to the imposition and

collection of such mayor's permit and other regulatory fees.
52

Supra.

DECISION
CTA AC NO. 82
Page 30 of 35

Petitioner operates and maintains the toll roads, toll booths, toll
plazas, and other structures itself, and any policing that occurs
within the NLEX is done by petitioner through its duly deputized
agents. 53

Indeed, respondents contend, the imposition of fees and

the requirement to secure a permit are part of the police power
of the LGU.

But being a delegated statutory power of the LGU

as

under Section

provided

16 of the

LGC,

it cannot

be

surrendered nor waived and for as long as a business activity is

being carried out or conducted within the municipality of the
LGU, mayor's permit must be secured. 54

Petitioner's position has no leg to stand on.

Mayor's permit or license fees are charges imposed under

the local government's exercise of police power which are
intended to cover the cost of regulating business activities or
privileges. The Supreme Court in Acebedo Optical Company, Inc.
vs. The Honorable Court of Appeals, eta!. 55 explained the nature
and the parameters of the exercise of police power in this
fashion:
53
54

55

Pars. 58 to 67, Petition for Review, docket, pp. 25 to 27.

Pars. 15 to 19, Discussion, Comment, docket, pp . 367 to 368.
G.R. No. 100152, March 31, 2000.

DECISION
CTA AC NO. 82
Page 31 of 35

Police power as an inherent attribute of sovereignty is the

power to prescribe regulations to promote the health,
morals, peace, education, good order or safety and
general welfare of the people. The State, through the
legislature, has delegated the exercise of police power to
local government units, as agencies of the State, in order
to effectively accomplish and carry out the declared
objects of their creation. This delegation of police power is
embodied in the general welfare clause of the Local
Government Code which provides:
Sec. 16. General Welfare . - Every local
government unit shall exercise the powers
expressly granted, those necessarily implied
therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and
effective governance, and those which are
essential to the promotion of the general
welfare . Within their respective territorial
jurisdictions, local government units shall
ensure and support, among other things, the
preservation and enrichment of culture,
promote health and safety, enhance the
right of the people to a balanced ecology,
encourage and support the development of
appropriate and self-reliant scientific and
technological capabilities, improve public
morals, enhance economic prosperity and
social justice, promote full employment
among their residents, maintain peace and
order, and preserve the comfort and
convenience of their inhabitants.

The scope of police power has been held to be so

comprehensive as to encompass almost all matters
affecting the health, safety, peace, order, morals, comfort
and convenience of the community. xxx

Since mayor's permit and license fees are imposed in the

exercise of police power primarily for the purpose of regulation,
the law mandates that the mayor's permit and license fees shall
be imposed and collected before any person may engage in

DECISION
CTA AC NO. 82
Page 32 of 35

business within the municipality.

Section 147 of the LGC

provides:

SEC. 147. Fees and Charges. - The

municipality may impose and collect such
reasonable
fees
and
charges
on
business and occupation and, except as
reserved to the province in Section 139 of
this Code, on the practice of any profession
or calling, commensurate with the cost of
regulation, inspection and licensing
before any person may engage in such
business or occupation, or practice such
profession or calling. (Emphasis supplied)

Furthermore, Article 233 of the IRR of the LGC, which

implements Section 147 of the LGC, also provides:

ARTICLE 233. Fees and Charges . The municipality may impose and collect
such reasonable fees and charges on
businesses and occupations and, except
as reserved to the province in Article 229 of
this Rule, on the practice of any profession
or calling before any person may engage
in such business or occupation, or practice
such profession or calling provided that such
fees or charges shall only be commensurate
to the cost of issuing the license or permit
and the expenses incurred in the conduct of
the necessary inspection or surveillance.
No such fee or charge shall be based
on capital investment or gross sales or
receipts of the person or business liable
therefor. (Emphasis supplied)

DECISION
CTA AC NO . 82
Page 33 of 35

It is clear under Section 147 of the LGC and Article 233 of

its IRR that mayor's permit and other regulatory fees may be
required and imposed by LGUs before individuals or juridical
entities can engage in any business within the LGUs territorial
jurisdictions.

Accordingly, as an entity that conducts business within the

territorial jurisdiction of the Municipality of Guiguinto, Bulacan,
petitioner cannot avoid and therefore liable to pay mayor's
permit and other regulatory fees assessed by respondents in
their Notice of Assessment dated September 2, 2008.

WHEREFORE,

the

PARTIALLY GRANTED .

instant

Petition

for

Review

is

The assailed Consolidated Decision

dated July 7, 2011 and the Order dated October 6, 2011,

rendered by the Regional Trial Court of Malolos City, Bulacan,
Branch 84, are hereby MODIFIED .

The Notice of Assessment

dated October 7, 2008 issued against petitioner for local business

tax for the years

2005 to 2007 in the total

amount of

P67,443,765.93, is hereby CANCELLED and SET ASIDE, for

lack of basis.

DECISION
CTA AC NO. 82
Page 34 of 35

Petitioner is however ordered to PAY the Municipality of

Guiguinto, Bulacan the mayor's permit and other regulatory fees
assessment for the years 2004 to 2008 in the total amount of
P2,316,972.50, inclusive of surcharges and penalties, as stated
in respondents' Notice of Assessment dated September 2, 2008.

SO ORDERED .

We concur:

t-A ~ (LA.._

ERNESTO D. ACOSTA
Presiding Justice

ER~.UY

Assoc1ate Justice

DECISION
CTA AC NO. 82
Page 35 of 35

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is

hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.

L k.oA~

ERNESTO D.

Presiding Justice